Showing events on this day in years past that shaped history... just, not our history.

Sunday, October 3, 2010

October 3, 2008 – Bush Vetoes Bailout

A vicious cycle of “predatory lending” following comfortable economic growth in the mid-2000s gave way to one of the largest economic disasters since the Great Depression. Governments all over the world faced trade problems, collapsing values, and surging commodities including oil and food costs. In the United States (often blamed as the source of this disaster), the main issue was sub-prime mortgages.

Under legislation to promote home-ownership in the Clinton era, laws limiting the offers of loans to persons with poor credit were softened. A housing bubble began, and money from investors quickly followed. Mortgages were taken up by banks, resold to lending institutions, and parceled out to securities, some at very high risk. When the growing economy hit an inevitable stone in the road, mortgages began to default, causing a loss to investors, causing a withdraw of spending, causing further economic downturn. With houses pouring onto the market, home prices plummeted. The stock market dove as well, and unemployment skyrocketed from businesses forced to downsize.

Economic bad news seemed to swallow up all news, even eclipsing military actions in Iraq and Afghanistan. Famously, Bernie Madoff and his Ponzi scheme would be one of many examples of the mishandling of funds that would all but destroy Americans' faith in business. With an election in November, President George W. Bush called for decisive action.

On September 21, Secretary of the Treasury Henry Paulson would propose a plan for some $700 billion in government funds to support mortgage-backed securities like Freddie Mac, AIG, and Fannie Mae as well as major bankrupt businesses like General Motors. The original proposal called for nearly unlimited power as well as freedom from judicial review and oversight. Americans booed the plan, and it underwent a week-long adjustment through Congress before becoming the Emergency Economic Stabilization Act of 2008.

On September 24, Bush addressed the nation, describing a disastrous future for the American economy if some sort of action was not taken. The idea of using tax dollars to invest and then be returned when the economy was sound came off as good to many until the President mistakenly left out the word “back” from the phrase, “gives our economy the flexibility and resilience to absorb shocks, adjust, and bounce back.”

Commentators on both sides (liberals looking to knock down Republican votes in November, conservatives looking to stop the “socialization” of America) descended upon the word, portraying the “bouncing” of the economy as a clear signal that nothing was in control. The government would throw desperately needed money at a problem, and debts would only rise. In a rash of speeches and a viral video describing its methods against Keynesian economics of feeding the cycle of boom and bust, the conservative economic ideals of Friedrich Hayek came to the forefront. Allusions to the works of Ayn Rand began to resound. “Let 'em Fail” drowned out the calls of “Too Big to Fail.”

Feeling the change in American opinion, Bush vetoed the bailout bill, sending it back to Congress and asking for something that “won't pat the back of lazy sleaseballs.” Another bill would be produced by the end of October called the Economic Solvency Act of 2008. It posed stiffer regulations and granted power to the FDIC to clean up the mess banks made with harsh penalties, including criminal investigations.

Wall Street reacted by collapsing. Americans flew into panic, stockpiling weapons, bottled water, and canned goods. Riots broke out in major industrial cities, practically tearing Michigan apart and creating militarized Union workers locking down factories until agreed pay was given. The 2008 election gave Democrat Barack Obama the White House and a country on the verge of anarchy. While millions were devastated, his alleviation programs akin to the WPA and breadlines of FDR kept the country from total disaster, which was seen in many other countries with open warfare in Greece and a collapse of rule in Iceland.

The economy has readjusted and begun to rebuild, slowly, upon Hayek grounds. The Second Great Depression drags on with promises that, one day, jobs will be plentiful again. In the meantime, savings of whatever is left are solid upon a gradually deflating dollar.

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In reality, Bush and the nation at large approved the Paulson plan and its promises of an economy that will indeed “bounce back.” As future generations cope with a continual federal deficit and a national debt looking to cross $14 trillion by the end of 2010, an end to the recession seems in sight, but unemployment remains depressingly high.